Question

1) Fixed Price Incentive Fee Calculation. In this fixed price incentive fee contract, the target cost is estimated at $9,000,000 and the target fee is $850,000. The project is over, and the buyer has that the costs were, in fact, $8,000,000. Because the seller's cost came in lower than the estimated costs, the seller shares in the savings: 70% to the buyer and 30% to the seller. The ceiling price is $12,500,000. Calculate the final fee and final price

Fee $1,150,000 Price: $9,150,000

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2) Fixed Price Incentive Fee Calculation. In this fixed price incentive fee contract, the target cost is estimated at $150,000 and the target fee is $30,000. The project is over, and the buyer has that the costs were, in fact, $210,000. Because the seller's cost came in higher than the estimated costs, the seller shares in the added cost: 60% to the buyer and 40% to the seller. The ceiling price is $200,000. Calculate the point of total assumption.

$183,333

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3) Cost Plus Incentive Fee Calculation. In this cost plus incentive fee contract, the cost is estimated at $210,000 and the fee at $25,000. The project is complete, and the buyer has agreed that the costs were, in fact, $200,000. Because the seller's costs came in lower than the estimated costs, the seller shares in the savings: 80% to the buyer and 20% to the seller. Calculate the final fee and final price. The answer is :

Fee $27,000 Price: $227,000

Answer 1

1.

Target Cost = $ 9,000,000

Target Fee = $ 850,000

Target Price = $ 9,850,000 ( $ 9,000,000 + $ 850,000)

Sharing Ratio = 70/ 30

Ceiling Price = $ 12,500,000

Actual Cost = $ 8,000,000

Final Fee = Targer Cost - Actual Cost

   = $ 9,000,000 - $ 8,000,000 = $ 1,000,000

   = $ 1,000,000 * 30% = $ 300,000

   = $ 850,000 ( Target Fee) + $ 300,000

Final Fee = $ 1,150,000

Final Price = Actual Cost + Final Fee

   = $ 8,000,000 + $ 1,150,000

   = $ 9,150,000

2.

   Taget cost = $ 150,000

   Target Fee = $ 30,000

   Target Price = $ 180,000 ( $ 150,000 + $ 30,000)

   Sharing Ratio = 60/40

    Ceiling Price = $ 200,000

Point of Total Assumption = [($ 200,000 - $ 180,000 )/ 60 %] + $ 150,000

= ($ 20,000 /.6 ) +$ 150,000

   = $ 33,333 + $ 150,000 = $ 183,333

3.

   Target Cost = $ 210,000

   Target Fee = $ 25,000

   Target Price = $ 235,000 ($ 210,000 + $ 25,000)

  Sharing Ratio = 80/20

   Actual Cost = $ 200,000

Final Fee = $ 210,000 - $ 200,000 = $ 10,000

= $ 10,000 * 20 % = $ 2,000

= $ 25,000 + $ 2,000 = $ 27,000

Final Price = Actual Cost + Final Fee

= $ 200,000 + $ 27,000

= $ 227,000